PMI, or Private Mortgage Insurance, is a type of insurance that lenders require from homebuyers who make a down payment of less than 20% of the home's purchase price. This insurance protects the lender in case the borrower defaults on the loan. It is typically added to the monthly mortgage payment and can be removed once the homeowner has built enough equity in the property. PMI can vary in cost based on the size of the down payment and the loan amount. While it adds to the overall cost of homeownership, it allows buyers to purchase a home sooner without needing a large down payment. Understanding PMI is essential for potential homeowners to make informed financial decisions.